Tax breaks, layoffs pad CEO pay

Compensation report singles out top earners

By

WilliamSpain

CHICAGO (CBS.MW) -- Inside trader and convicted felon Ivan Boesky once told a cheering crowd of college students that "you can be greedy and still feel good about yourself."

CEOs targeted in a compensation study released Tuesday might take some comfort from the words of the famed Wall Street jailbird. Shareholders and employees, on the other hand, are apt to see even more red if they read the damning 30-page report from the Institute for Policy Studies and United for a Fair Economy.

The eighth annual "Executive Excess" report takes aim at the pay levels of many of America's best-known chief executives, comparing them unfavorably to stock performance. It also claims that those who laid off the most workers earned nearly double those who didn't; that some of the country's largest corporations enjoy negative tax rates; and that women remain far behind their male counterparts in top-level compensation.

Among the findings:

CEO pay jumped 571 percent between 1990 and the end of 2000, compared to a 300 percent boost in the S&P 500 and a 37 percent rise in worker salaries.

If the minimum wage had risen at the same percentage rate as CEO pay, workers on the bottom rung would be earning $25.50 an hour.

The CEOs of companies that announced layoffs of over 1,000 people this year earned an average of 80 percent more than those who avoided dropping the ax.

While the report examines rising executive pay levels, declining corporate tax rates and gender inequities at dozens of U.S. companies, it singled out a handful for individual criticism.

WorldCom
WCOM
CEO Bernard Ebbers was one subject of particular scorn. Just before laying off 6,000 early this year, he pocketed a $10 million bonus, while getting the company to grant him loans and guarantees of over $150 million to cover personal losses sustained via stock market speculation. Or, as the report put it, he "was lucky enough to be at the helm of a company that cushioned him from his own reckless investment decisions."

A spokeswoman for WorldCom declined to respond to the charge, citing a policy against commenting "on the personal finances of any of our employees."

Shares in WorldCom closed down 30 cents, or 2.3 percent, to $12.97 Tuesday. A year ago, the stock was trading near $40.

IPS and UFE also claimed to smell a rat at Walt Disney Co.
DIS
CEO Michael Eisner, they said, "boasted of a 33 percent increase in operating profits for the first quarter of 2001 at the same time that he announced plans to lay off 4,000 people."

While it "initially announced it would attempt to shrink its work force through buyouts, [the company] recently admitted that few employees had accepted the offer."

That, according to a Disney spokeswoman, is "absolutely incorrect." Three-quarters of the cuts were achieved through voluntary buyouts, with only about 1,000 via involuntary layoffs, said Christine Castro of Disney.

In addition, the report said that Eisner made almost $73 million last year. Castro said that actual cash salary and bonus payments were more like $12 million, with the rest probably coming from the granting and/or exercise of options.

Regardless, she pointed out, Eisner's pay is "directly tied to the company's performance and Disney did very well in fiscal 2000."

Disney lost 64 cents, or 2.4 percent, to close Tuesday at $25.76.

Tax freedom days

The report also said that tax rebates have helped pad CEO pay to an average of $1 million more than at companies that actually paid federal levies.

Pfizer
PFE
was a prime example, the report said. The pharmaceutical giant made $1.2 billion in 1998, but used restructuring charges and write-downs to avoid paying any taxes. In fact, it actually got Uncle Sam to pony up a $200 million check -- a tax rate of negative 16.5 percent. Of course, then-CEO William Steere only got a little of that: an extra $10 million, which brought his compensation for the year to $38.2 million.

The company did not return repeated phone calls from CBS.MarketWatch.com. Shares in Pfizer closed off 80 cents, 2 percent, to $40.15 Tuesday.

Reuben Mark of Colgate-Palmolive
CL
did rather better. In 1997, his pay went up by $18.7 million -- just a tad less than the personal care giant's $19.3 million tax rebate that year. He built on those gains in 1998 when the company got a $19.6 million rebate and he took home an extra $27.3 million.

A Colgate spokeswoman, however, took issue with those numbers: "The survey is inaccurate," she said. "Colgate did not receive refunds in 1997 and 1998 and in fact, during that period, we paid many millions in federal income taxes."

Shares in the company were down 65 cents to $54.71 on the session.

Coca-Cola
KO
Texaco
TX
and General Motors
GM
were among the other highlighted companies to enjoy negative tax rates in the late 1990s, the report said.

United for a Fair Economy has been doing these reports in an effort to "point out a trend of wealth gushing upwards in our society," said co-author Betsy Leondar-Wright. While it has touched on similar themes in past years, this is the first time it has examined tax rates in relation to CEO pay and the results were a bit of a surprise.

"We could not have predicted the correlation ... would have been quite as strong as it turned out to be," she said. Even so, it certainly fits in what has "become a winner-take-all economy where the gains are not shared with those on the bottom and the sacrifices are not shared by those at the top."

The study also attempts to debunk the notion that executive pay is the result of prevailing market conditions and can even create shareholder value. In a compelling end note, it points out that if "someone invested $10,000 in the company with the highest-paid CEO on Dec. 31, 1993, held it for a year, then sold it to buy stock in the next year's pay leader and so on, by the end of 1999 [it] would have eroded to $3,585."

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